There are all
kinds of clauses involved with
life insurance
policies. It's a veritable attorney's dream
(or nightmare) reading through the typical life
policy. One very important clause that
bares further explanation is the contestability
clause. Let's go through this clause and
understand its impact on you as the policy holder as
it can be pretty significant. It's also
important to discuss ways to avoid triggering this
clause all together during the underwriting and
application process. Let's look a little
closer at contestability clauses found in life
insurance.
First, a
definition of the contestability clause in simple
language. Essentially, if the applicant of a
life insurance policy misleads, misrepresents, or
withholds material information to the life insurance
company during the application process, the life
insurance company may not have to pay benefits in
the event of the insured passing away. The
key word there is material. Material basically
means that the information is important to the
consideration of your application to the life
insurance company. A hangnail probably doesn't
apply but elevated cholesterol does. Our
recommendation is to list everything and answer each
question thoroughly and honestly so you can avoid
any issues involved with the contestability clause
when applying for life insurance.
Life
insurance application tend to be less involved than
average health insurance apps since both types of
insurance plans differ in what they view as
important. Life insurance is more concerned
with issues that affect mortality while health
insurance is more concerned with issues that affect
morbidity.
There are two
ways that the the contestability usually becomes an
issue. The first is that the applicant simply
forgets information. You want
to make sure not to do this with larger issues.
Even if you honestly forgot a more serious issue, it
can still come back to bite you via the
contestability clause. The life
insurance application is a contract after all.
Even if honestly forgotten, material information
left off the application can jeopardize the validity
of the contract and potentially void the contract
(and your ability of your
life beneficiaries to receive
life benefits).
The other way is that a
person is concerned about qualifying for life
insurance and/or the rate and health class that will
be offered based on pre-existing condition which
leads them to conceal or misrepresent this
information. Don't do it. It doesn't
make sense to jeopardize your life insurance
benefits by concealing information. It defeats
the purpose of
buying life insurance altogether by
doing this. Life insurance is all or
none...there's no 50% payout. By jeopardizing
your life insurance contract, your beneficiaries may
end up with nothing.
There's a
timetable that constrains the life insurance
contestability clause. The life insurance
company has 2 years to use the contestability clause
if evidence of misrepresentation, concealment, or
material fraud occurs. After this period of
time, the carrier is unable to use this particular
clause in such situations. There are other
options now if you have a health issue such as
no
medical life insurance. We can also try to
re-apply in the future to replace life insurance
which is issued on a higher tier. Some issues
can be remedied with more time away from them such
as driving record issues. If you are concerned
about your chances of qualifying, please contact us
with your situation so can we avoid any issues with
the contestability clause.
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